Analysis originally distributed on January 24, 2018 By: Michael Vodicka of Cannabis Stock Trades
There are fewer things that can send a stock soaring like a buyout. And right now - I see a wave of buyouts ready to pop off in the cannabis sector - and I want to show you how you can profit.
When one company buys another company - shares of the company being bought usually surge higher.
Let me give you a recent example.
On January 18, Celgene Corp. (CELG) announced it would buy Juno Therapeutics (JUNO), a promising young biotech for $85 per share - a 91% premium to its share price at the time of the announcement.
That sent shares of JUNO soaring 91% in just seven days - giving JUNO shareholders a big gain in a very short amount of time.
Today - I see a big wave of buyouts coming down the pike in the cannabis sector and I believe it is creating another awesome opportunity for big profits.
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Ernst & Young, a global leading consulting and research firm, recently published a report that predicted major consolidation in the Canadian cannabis sector.
After interviewing almost a dozen Canadian licensed producers - E&Y predicts a wave of consolidation in the Canadian cannabis leading up to legalization this July.
"Many believe that consolidation is inevitable, leaving a few large players post-legalization. Inorganic growth is expected to persist, leaving a few large players."
It looks like E&Y is spot on, because this potential wave of consolidation is already happening.
For example, on November 24 Aurora Cannabis (ACBFF), one of Canada's largest cannabis companies, announced a bid to buy Cannimed (CMED), another Canadian cannabis company, for $24, a 59% premium to its share price at the time.
Looking forward - just as E&Y predicts - I am also expecting to see more buyout offers as we move closer to July 1. We're likely to see more until the Canadian cannabis industry is dominated by a small group of large companies, which is exactly how many industries are structured.
One of the best strategies to profit from this trend of consolidation is to own mid-sized Canadian cannabis companies with market caps between $250 million and $1 billion.
These companies are ideal takeover targets for two reasons.
1. With market values of less than $1 billion, a large company like Canopy with a market cap of $7 billion can easily afford.
2. Despite smaller market caps, these companies can still add substantial production capacity to their larger counterparts.
With these key factors in mind, here is a list of 7 Canadian cannabis companies with market values of less than $1 billion that will make excellent buyout targets in 2018.
From this list, I have chosen to highlight Maricann Group (MARI) because of its ambitious plans in high-growth international markets.
Maricann is a Canadian licensed cannabis company that is making a big move into Germany.
Maricann purchased a food production facility from Cargill in early 2017 located in Dresden, Germany for $3.8 million. Maricann is now in the process of building a 500,000 square foot cannabis greenhouse at this location.
There is still a lot of risk in this project. Even the best-laid plans need to be well executed. But if Maricann can pull off building this greenhouse it will be the largest in all of Europe and serve as a distribution hub to the entire European Union.
On the chart, Maricann was flat for most of 2017 before surging into a new all-time high in the fourth quarter.
Looking forward, if a larger cannabis company such as Canopy or Aphria wanted to increase domestic and international production, Maricann looks like an ideal target. If it happened, I would expect Maricann to be bought at more than a 40% premium to its current share price.
Risks to Consider
Maricann still needs to execute its plan to build a massive cannabis greenhouse.
Action to Take
I am expecting buyout activity to accelerate in the next few months. This group of young cannabis companies look like ideal candidates.
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